Mortgage Restructuring Advice

T

thegilly

Guest
I bought a new house at the end of last year (House 2) for 600k with the expectation of selling my current house (House 1) which was bought new for €330k 2 1/2 yrs ago. I paid no stamp duty on the original house and a small amount on the recent purchase as it was just over 125m.

The sale on the current house has now fallen through ( been ont he mkt since last Sept )and I closed on the new house in December leaving me with 2 mortgages.

I currently owe €180k on House 1 which is worth approx €420k, and €495k on House 2 worth approx €600k ( so altogether €675k ). Both mortgages are with the same lender with the €180k at a higher rate - approx 4.6%.

If I rent House 1 I will be caught for stamp duty clawback of approx €19k, as I havent lived there for 5 years, but there seems to be little option but to pay the SD and to rent.
The estate agents opinion is that the market is flat right now and that securing a new purchaser is unlikely in the current market.

Renting seems to be the only option, even just for a short period of time until the market begins to pick up. I cant afford to just sit idly and wait for the market to pick upand need to make some decision quickly. I had planned to move to House 2 mid may to coincide with the sale closing.

The rental monthly rental income which could be generated from House 1 is approx €1200 per month.

What advice would people suggest in regard to restructuring the mortgages to maximise the rent being generated and also minimise the repayment on the larger mortgage ?
 
Am I missing something, but would it be crazy to rent the original property? Yes you'll get €1200 per month but you'll have to shell out €19,000 in SD clawback.
Is lowering your expectations and selling the original property for less an option?
Equally, is hanging onto the original property long term an achievable goal?
 
Currently paying capital and interest on the €495k, and interest only for 6 months on the €180k.
Had originally requested a moratorium from the bank on the 180k but interest only was the best they would do. needless to say I have no qualms about moving my mortgage from there.
 
KalEl, would ove to sell the property and not have the clawback, it would be a lot less stressful too. As I mentioned the sale fell through so renting hasnt been on the cards until now. Problem is there are 4 other properties just like our for sale in the estate and we were the only one who even had an offer.
 
If you havent been living in house 1 for more than one year you also will have a capital gains tax problem to contend with when you sell so you should factor that in too.
 

You know yourself, you have two choices : Lower the asking price on the property so you can sell it or become an investor and rent out the property. Is renting it out a goer? I mean, you seem to be doing quite well...you've put over €100K into your new home and you have €240K equity in the investment property. renting out the house will not make it wash its face but could be worth looking at.
I don't want to put words in your mouth...only you can decide. Are you in this on your own or with someone?
 
Highflier,

Apologies - My initial comment is misleading. I have been living the House 1 as my PPR since I bought it. My reference to having no lived there for 5 years relates to the tax law which means if you did not pay stamp duty on a new home but derive rent on it within five years of the purchase date there is a clawback of the full amouint of stamp duty payable at the time of the original purchase - which in my case was bout €19k
 

Highflier means when you move house you have 1 year to sell your old house.
If it goes longer than that you're considered to be speculating and you get hit with CGT
 
I don't think mortgage capital restructuring is a particularly useful option - should you choose to rent out house 1, the only tax deductible mortgage interest is on the mortgage used to acquire the property, on which I gather there's an outstanding balance of €180,000.

KalEl's right - you have two main options:
(1) You could drop the price - say by €19,000 (the amount of the clawback you would have to pay if renting) - and see if that's enough to make it sell. Providing you sell by next December without renting it out in the intervening period you won't incur a CGT liability - although realistically, you appear to need to get a sale in a shorter time.

(2) You become a landlord. If you were to convert the mortgage to interest only, it looks like your interest payments would be somewhere around or under €750 per month, giving you a gross rental profit of €450 if you can indeed secure €1,200 in rent (not taking into account vacancy periods and other deductibles). Certain other expenses and depreciation may also be allowable against rental profit. Rental profit will be taxable at your marginal rate of tax.

However, this is not something that should be done lightly. First of all, you wil have to find your €19,000 from somewhere because the clawback is due immediately. You'll also have to fund any furniture / fittings / decoration needed prior to renting; to register any tenancy with the PRTB; to be prepared to pay a management company to find and vet tenants and possibly arrange repairs, etc., or undertake the work yourself; to make tax returns in relation to rental income - all the various legal and financial responsibilities that being a landlord entails. And you will then have a CGT liability in relation to the ultimate disposal of the property, whenever that is.

If you're under financial pressure I'd honestly be inclined to drop the price to secure the sale, if your EA reckons that's enough to do it. Either way, you need to be aware of the up-front expenses and the implications of being a landlord. Too many "accidental landlords" assume that everything will just take care of itself - and while, with good tenants and a well maintained property, it may nearly do so, you can't afford to assume that.
 
Sit tight until after the election. Wait for the stamp duty to change.

Put the house on the market at a price it will sell.

There will be a bounce for a few months after the stamp duty change and that is opportunity to move on.

At this point taking the equity and knocking it off new mortgage will probably give best return in next 2/3 years.
 
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